339,000 jobs added despite high inflation
US hiring accelerated in May as employers added a buoyant 339,000 jobs and the labor market retreated from high interest rates and persistent inflation.
The unemployment rate, calculated from a separate survey of households, rose from a five-decade low of 3.4% to 3.7%, the Labor Department said Friday. It is the highest since October.
Economists surveyed by Bloomberg had estimated 195,000 jobs were added last month.
Wage gains for March and April were also revised up by a total of 93,000, which shows stronger hiring in the late winter and early spring than expected.
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The labor market has been remarkably solid despite the Federal Reserve’s aggressive rate hikes aimed at curbing hiring and wage growth, and breaking down inflation.
Fed officials have said they may pause rate hikes at a meeting this month, but the big May jobs report and more worrisome inflation data later this month could stymie that plan.
S&P 500
The main stock gauge, the S&P 500 index, rose 61 points, or 1.4%, to 4,282 in early afternoon trading on Friday, while the Dow Jones Industrial Average climbed 635 points, or 1.9%, to 33,697. Indices were boosted by the jobs report, which also showed, perhaps more importantly for markets, that gains in workers’ wages also slowed even as hiring strengthened. Wages are a driver of inflation.
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10-year government yield
Traders increasingly expect the Fed to follow up the pause with a rate hike in July, according to data from CME Group. That helped push government interest rates higher. The yield on the 10-year Treasury rose to 3.63% from 3.60% late Thursday. It helps in setting interest rates for mortgages and other important loans.
The two-year Treasury yield, which moves more in line with expectations for Fed action, rose to 4.41% from 4.34%.
What is wage growth?
In a more encouraging sign, despite last month’s hiring frenzy, average hourly earnings rose 11 cents to $33.44, pushing the annual increase down to 4.3% from 4.4%. It should give the Fed some comfort that wage increases and inflation continue to gradually moderate.
“The data shows that job growth continues at a brisk pace, but wage pressures are not building,” says Rubeela Farooqi, US chief economist for High Frequency Economics. Despite the strong job gains, she says the modest average wage increase should keep the Fed on track to keep interest rates steady this month.
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Which industries are seeing job growth?
Professional and business services led the job gain with 64,000. The health service added 52,000; leisure and hospitality, the sector hardest hit by the pandemic, added 48,000, mostly in restaurants and bars; and construction, 25,000. The government added 56,000 jobs, mostly at state and local agencies.
Manufacturing, which has contracted for six straight months, cut 2,000 jobs.
Job growth has generally slowed in recent months as interest rates have risen and recession fears have grown, but the numbers have been volatile. Businesses frustrated by pandemic-related labor shortages continue to hire workers and minimize layoffs. Unusually warm weather has also strengthened job growth in recent months.
Employers posted a record 10.1 million job vacancies in April, up from 9.7 million the previous month and reversing a recent slowing trend, Labor said this week. At the same time, the number of people leaving their jobs fell to the lowest level in two years, in a sign that workers are less confident they can switch jobs for big pay raises, a positive development from the Fed’s perspective.
Homebase, which makes work scheduling software for small businesses, said wages fell last month for the first time since 2021.
While labor shortages lack bad employers, they have eased across most of the US as Americans sidelined by the pandemic filter back into the workforce. But companies still struggling to find workers typically hire them early in the year ahead of the spring hiring season, leaving a smaller labor supply that is likely to dampen May’s job growth, Goldman Sachs said.
Hiring tends to pick up again in June as high school and college students look for summer jobs, the research firm says.
Another factor weighing on May’s wage gains was tighter bank lending standards in the wake of the collapse of several regional banks plagued by deposit runs. Industries such as restaurants and hotels rely on credit to pay workers. The tougher lending criteria likely reduced job growth by about 25,000, Goldman estimates.
